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Massive Gunfire Outside Bethlehem's Church of the Nativity

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. ANNOUNCER: This is LOU DOBBS MONEYLINE for Wednesday, May 1. Sitting in for Lou Dobbs, Jan Hopkins.

JAN HOPKINS, CNN ANCHOR: Good evening. Tonight massive gunfire outside Bethlehem's Church of the Nativity. We will go live to Bethlehem, where Walter Rodgers is on the scene.

Palestinian President Yasser Arafat is now free to move about for the first time this year. And tonight, cheering and celebrations outside Arafat's compound. His freedom follows a hand-over of six militant Palestinians, four of them convicted of murder. We're waiting for words from Mr. Arafat.

American and allied forces conquer al Qaeda and Taliban forces along the Afghan border. We will go live to the Pentagon and General David Grange will be our guest.

A new report says more than half of all Americans breathe dangerous air. We'll tell you why people in some of the smoggiest cities may actually be breathing a little easier.

But first tonight, it is after 1:00 in the morning in Bethlehem. And there, a massive gunfire exchange about an hour ago, reported around the Church of the Nativity. A fire broke out near that church. We understand that the fire has been extinguished. Smoke is now rising, still, above Manger Square. Walter Rodgers is in Bethlehem and we'll hear from him in just a few moments.

But in the meantime, Yasser Arafat is free to walk outside his headquarters for the first time in weeks. And tonight -- these are live pictures of Yasser Arafat talking to his supporters.

YASSER ARAFAT, PALESTINIAN LEADER: ... not only for the Christians. This is also for the Muslims. How do (UNINTELLIGIBLE) silent about this dirty, this big criminal. (UNINTELLIGIBLE) place in the Nativity church.

QUESTION: (SPEAKING IN ARABIC)

ARAFAT: (SPEAKING IN ARABIC)

HOPKINS: That was Yasser Arafat talking about what's going on at the Church of the Nativity. Yasser Arafat is now free to move outside of his compound in Ramallah. Let's go to Walter Rodgers, who's standing by outside of the Church of the Nativity. And he can tell us what's going on there now -- Walter.

WALTER RODGERS, CNN CORRESPONDENT: Hello, Jan. The fire which was burning in and around the Church of the Nativity here in Bethlehem, the traditional site of Jesus' birth, now appears to have been extinguished. There was a firefight about an hour and a half ago.

What happened depends upon whom you ask. The Israelis say that the Palestinians inside the church -- and remember, there are well over 100 Palestinians, perhaps upwards of 200 Palestinians inside that church. According to the Israelis, some 25 to 30 of them are wanted men.

Having said that, the Israelis claim that the Palestinians were under the mistaken impression the Israelis were going to storm the church. And consequently, according to the Israelis, the Palestinians set three different fires in the area of the Church of the Nativity.

Now, the Israelis say they were not storming the church. But when the fires began, the Israelis -- the Palestinians began shooting out into the square, Manger Square, here in Bethlehem. And that's when this enormous firefight erupted.

It began about midnight local time, which was an hour and a half ago. That firefight saw much of Bethlehem lit up with tracer bullets going across the sky. But the fire itself appears to have been, as I say, extinguished.

There was a moment within the last half-hour, in which the bells of the church were tolling. But again, there was no massive conflagration in the Church of the Nativity itself. Slightly to the left of it, I believe, were the Franciscan priory is, the Franciscan monastery attached to the Church of the Nativity, there appeared to be a somewhat serious fire.

But again, that was extinguished. It is dark here. There is a curfew. It's very difficult to see exactly the amount of damage done. And the Israelis don't want anyone near the square at this point because it's extraordinarily dangerous. There's been shooting down there, as I said, for the last 90 minutes or so -- Jan?.

HOPKINS: So basically what you're telling us is the Israelis are saying that the Palestinians thought that the Israelis were going to storm the church. And that's when the firefight broke out. But in fact, the Israelis were not storming the church?

RODGERS: This is what the Israelis say. The Israeli position is that the Palestinians were under the mistaken impression that the Israeli army forces who are stationed around the church were going to move upon the church itself. At that point, according to an Israeli army spokesman, Olivier Rocoviche (ph), who is a colonel in the IDF, it is the Israeli claim that those inside the church began to set fires.

That being the case, the Israelis never moved upon the church, according to the Israelis. And without too much ado, someone inside the church began extinguishing the flames, in a building which appeared to be adjacent to the church -- not in the nave.

I don't think it was in the nave of the Church of the Nativity, which is the most fire-prone area. It has an old wooden roof. And it is also the most sacred part of the church. The flames appear to have been somewhat to the left, just to the east of the nave itself. And, again, they've been extinguished.

The extent of the damage, there was a fire there. There were several fires there, according to the Israelis. The extent of the damage we cannot assess because, as I say, it's 1:30 in the morning here. There's a curfew and it's just simply too dangerous to move in that direction. We could be accidentally shot or shot on purpose -- Jan.

HOPKINS: So you're some distance away. There is a curfew, you're not able to go there. So you have to depend on what's being told to you by Palestinians and Israelis, right?

RODGERS: Well, that's not exactly correct. I'm at an elevated position. I'm looking down on the Church of the Nativity itself. I watched this whole thing, I eyeballed the whole thing. The exact circumstances of how it commenced is something different and there are two different versions.

A short while ago on CNN, Saeb Erakat, the chief Palestinian peace negotiator, said he had spoken to someone inside the church, and it was their contention that the Israelis were trying to move upon the church. The Israelis deny that was ever the case.

It's the Israelis' claim that when the Palestinians were under the mistaken belief that there was an attempted Israeli siege on the church -- and that has not happened -- the Palestinians allegedly set different fires in different areas of the compound. Those fires have been extinguished.

The Israeli position is they never moved on the church. This could be a tragedy of errors. But again, it's going to take a full investigation, weeks and weeks, to determine what exactly happened tonight.

But the flames have been extinguished. And relative quiet has been restored here. The earlier gunfights we saw have quieted down.

HOPKINS: And no indication of any injuries as a result of this, no ambulances or anything like that?

RODGERS: No, there have not been ambulances. But ambulances would not move at this time of the night. This is an extraordinarily hostile environment. In fact, it's quite dangerous. It would be very, very risky for a fire department, a fire engine or, for that matter, an ambulance to move in the direction of the Church of the Nativity -- Jan.

HOPKINS: And there are about 180 people inside that church, as far as we know? RODGERS: Well, the numbers are a little unclear. The Israelis say well over 100, maybe upwards of 200. There are different classes of people in there. The Israelis have surrounded the church, principally because they are concerned that the -- there are 25 to 30 what the Israelis call hard-core Palestinian fighters, who the Israelis allege perpetrated acts of terror against Israeli citizens in recent months.

That's why they moved in Bethlehem. And of course, when the Israelis sent their tanks into Bethlehem, the Palestinians -- some who were innocent bystanders -- simply sought refuge in the church. And there are more than a few of those bystanders there. Some of them are simply Palestinian police who were in the area, who saw the Israeli helicopters above them and the tanks moving in. They ran inside the church.

Again, I've heard figures from 120 people still in there to close to 200. I don't think anybody outside the church is exactly sure. The Israelis, however, have used those numbers, 120 to 200 -- Jan.

HOPKINS: And the angry Yasser Arafat that we saw just a few minutes ago talking about what was going on at the Church of the Nativity, it's apparently his understanding that the Israelis were storming that church.

RODGERS: He is incorrect. And Mr. Arafat is 30 miles away from here. He is only getting secondhand information. We are literally within sight of the Church of the Nativity. We have seen no evidence the Israelis are storming the church or have attempted to storm the church. And the Israeli defense spokesman here flatly denies that.

HOPKINS: Thanks, Walter Rodgers, who's standing by near the Church of the Nativity.

We have on the phone Dore Gold, an Israeli spokesperson, who can tell us a little more about this situation. Actually, he will be joining us shortly.

We also have a number of things going on. We have the Israeli troops leaving the Ramallah compound of Yasser Arafat. We saw Mr. Arafat just a few minutes ago speaking. Also we have U.N. Secretary- General Kofi Annan tonight, calling off efforts to send a fact-finding mission to the Middle East.

And Richard Roth is standing by at the United Nations with more on that -- Richard.

RICHARD ROTH, CNN CORRESPONDENT: Yes, Jan, thank you. U.N. Secretary-General Kofi Annan, who was described as on the verge of disbanding that fact-finding team to Jenin yesterday, finally has gone through with it and has sent a letter to the U.N. Security Council and said he plans to abort the mission, effective tomorrow.

That still gives the Security Council a few hours -- because they're talking about the Middle East now -- to perhaps come up with some other guidance or suggestions or some plan of their own. But for now it looks like this team, 20 members strong, filled with diplomats and some police commissioners and former U.N. personnel, military people, will be headed home or to their various European capitals.

The problem, Annan says: the continued Israeli objections. He said the differences were fundamental in nature. Annan though is sorry, he says, that there will be a shadow left over this whole incident in what happened in Jenin because he was unable to get a team there. He said it's going to cast a long shadow which will remain as long as there's no fact-finding team.

Israel, Jan, said there should have been a fact-finding team looking for terrorists. And they were also worried about their own soldiers facing prosecution.

The Palestinians are outraged here. They don't blame Annan as much as the Security Council for not backing him up. The U.S. is ready tonight to stand strong with a veto in case Arab countries move to a resolution that threatens the use of military force to make Israel comply with this fact-finding team.

Palestinian representative Nasser al-Kidwa telling the press just moments ago he doesn't think it was a mistake for the secretary- general to say tomorrow, possibly hinting at some last-minute rescue of this team. But for now it appears dead on arrival in Geneva.

HOPKINS: Thanks, Richard Roth, at the U.N. in New York.

We do have on the phone now Dore Gold, an Israeli spokesperson who can tell us what is going on at the Church of the Nativity in Bethlehem. Welcome.

DORE GOLD, ISRAELI SPOKESPERSON: Thank you very much. Well, unlike the reports you've heard, this fire that broke out in the area of the Church of the Nativity had absolutely nothing to do with Israeli military operations, either ground operations or Israeli fire.

The fire broke out as a result of an intentional act of arson by the Tanzim fighters, the terrorists who have been in the Church of the Nativity. Israel respects the holy sites of Christendom and has demonstrated that respect all along in this crisis.

Unfortunately, Yasser Arafat's Tanzim gunmen have not. Now, we offered immediately, when the fire began, to help put out the fire, to actually coordinate with Palestinian firemen to go into the area of the church to try to put out the fire.

This help was refused by the Tanzim terrorists inside the church. Ultimately, they put the fire out by themselves.

HOPKINS: And where was the fire? Was it in the church or adjacent?

GOLD: The fire was in the area adjacent to the church. But the fire is out. It has absolutely nothing to do with Israel. It was set by Yasser Arafat's Tanzim fighters, gunmen, terrorists who have been in the church during this entire crisis. HOPKINS: And there was no storming of the church by the Israeli military?

GOLD: There was absolutely no ground movement of Israeli forces toward the church. No storming of the church, or unusual gunfire toward the church. There has been repeated sniper fire by the Tanzim terrorists from the church out towards Israeli positions.

HOPKINS: And as far as you know, any injuries as a result?

GOLD: No, we have no reported injuries as a result of this fire. But, again, the fire was caused by an act of arson by the Tanzim terrorists inside the church, not by Israeli military activity.

HOPKINS: So what you're saying was that gunfire just erupted from inside the church out? There was no...

(CROSSTALK)

HOPKINS: Go ahead.

GOLD: Through this entire crisis there has been gunfire by Tanzim snipers from the church towards Israeli positions. But the fire has nothing to do with gunfire or heated exchange of battle. The fire was set as an act of arson by the Palestinians' Tanzim terrorists inside the church.

HOPKINS: Do you have a reaction to the U.N. seeming decision to not have a fact-finding group come to see what happened in Jenin?

GOLD: Well, you know, the whole notion of a fact-finding group was born out of a fundamental lie, that Israel had committed a massacre in Jenin. Originally you had Palestinian spokesmen like Saeb Erakat stating on CNN that upwards of 500 Palestinians were killed in Jenin.

We now know that the figure is even around a 10th of that. And that's now verified not only by Israeli sources, but also by Palestinian sources. So the entire motivation for conducting this operation basically doesn't exist any longer.

And in fact, what's unfortunate is that the U.N. did not draw proper attention to the fact that the Jenin refugee camp had been turned -- in the language of the Fatah organization, to the capital of suicide bombings, to the source of at least 23 attacks against the people of Israel. That would have been a proper investigation, not looking for a massacre that never existed.

HOPKINS: Dore Gold, the Israeli spokesperson, talking about what happened about an hour ago at the Church of the Nativity.

Let's go back to Walt Rodgers. He is standing by near the Church of the Nativity. Walter, what can you tell us now?

RODGERS: Jan, it's very quiet in Bethlehem now, as Dore Gold was saying and as we have been reporting even before that. The flames, which were igniting around the Church of the Nativity, which is the traditional site of Jesus' birth here in Bethlehem, those flames have been extinguished.

Again, the Israeli government position continues to be that the Palestinians inside the church were under the misimpression that the Israelis were about to launch an attack on the church to try to get inside. The Israelis said that was never contemplated.

But at that point, according to Israelis, the Palestinians began setting fires around the area of the Church of the Nativity. And, again, according to the Israelis, those fires were what we have seen on our television screens for the last hour and a half.

From where I'm standing -- and I've had a pretty good view of the Church of the Nativity and I know those grounds very, very well -- it appears to me that the worst of the fire appeared to be somewhat to the east of the nave, which is the central portion of the Church of the Nativity, in an area which I believe belongs to the Franciscans, Franciscan monastery, attached to the Church of the Nativity itself.

Now, the Israelis say that they offered to have a Palestinian fire company come up and try and help fight those flames. The Israelis also claim that it was, in fact, the Palestinians who declined any help. And it was the Palestinians inside the church who ultimately extinguished the flames.

We cannot at this time of the night -- recall, it's going on 2:00 in the morning here. We cannot determine the extent of damage in the buildings around the Church of the Nativity at this particular point. It will take morning. And even then we can't be sure because it's just not safe to go close to the church itself. The Israelis themselves are having to stay back several hundred meters.

I should say that I'm familiar with this crisis and I do know the Israelis, despite what Yasser Arafat has said, the Israelis have been extraordinarily careful. They appreciate the sacredness of this shrine to Christians around the world. The Israelis would not have wanted to see anything happen here.

Because, of course, if they were responsible for it, they would, of course, have great opprobrium heaped upon their heads. So the Israeli forces here in Bethlehem have been scrupulously careful to see that the church itself was not damaged.

HOPKINS: And, Walter, in terms of how all of this started, were you able to hear gunfire exchanged on both sides before the fire?

RODGERS: Oh, sure. There was a reasonably decent firefight here this evening. I've heard worse in Beirut and I've heard worse in Sarajevo, but I was lying in bed at the time trying to figure out just how bad it was when this commenced.

What we could hear was a kalashnikov fire. And that's a very clear, denotable sound. And it was coming from around the Church of the Nativity. The Israelis say it was coming from within, but there are an awful lot of guns here in Bethlehem.

There was small arms fire returned. There appeared to be some concussion grenades fired. Of course, the Israelis fired flares into the air. Those flares, of course, would be to illuminate the area around the church to determine the extent of the fire and the threat to the Israeli forces there.

So, yes, there was a firefight. As I say, it lasted -- 45 minutes ago -- for 45 minutes or so, it was considerably intense at points. It would die out. But again, I would see red tracer shells streaking across the sky, and some of it not going anywhere near the church. It was as if every Palestinian with a gun in this part of the world wanted to take it out and try to take a pot shot at the Israelis.

HOPKINS: So, the Palestinians are still saying that the Israelis were wanting to storm the Church of the Nativity. You didn't see any evidence of that?

RODGERS: No. There's been no evidence of that. Again, there's no reason for the Israelis to storm that church. The Israelis, by the way, believe they have a hostage situation there. The Israelis are under the impression that some of the people inside that church do not want to be there, and are being held against their will.

So the Israelis have, at least in recent days, been very much behaving as if there were innocent bystanders inside that church who don't want to be there, held against their will. And there has been no visible effort whatsoever to storm that church.

And again, recall that the Israelis are very, very careful about this site. Remember, they for years preserved these Christian shrines in this part of the world. There's an interesting anecdote, if you'll allow me.

The Church of the Nativity is actually a shared jurisdiction between the Roman Catholic church, the Orthodox church and the Armenian church. And some years back -- not all that many years back, but in the 20th century -- there was a dispute over who would repair the roof, the old wooden roof, on the Church of the Nativity.

And the Catholics, the Orthodox and the Armenians could never agree, so the Israelis, when they were occupying this part of the world, simply moved in and said, all right, we'll fix the roof of your church. And the Israelis did it.

The Israelis have been very careful about that Christian shrine in particular -- Jan.

HOPKINS: And again, Walter, this has been going on for about a month with people inside this church. Israelis believe there are, what, up to 30 terrorists inside? And then the rest of the people, maybe up to 200 or more, are others, basically? RODGERS: Actually, Jan, you're correct. It's a month today, this being the 2nd of May. It began April 2nd. The Israelis were conducting a sweep of Bethlehem on April 2nd. They were looking for what they call terrorists, militants, in this area. And this is a fairly substantial Hamas stronghold.

Hamas, a radical Islamic group, a fundamentalist Islamic group, has a fairly strong foothold here in Bethlehem. And as the Israelis were making their sweep, anyone in the vicinity of Manger Square immediately ducked into the Church of the Nativity seeking refuge.

How many people are there? The Israelis say anywhere between 120, perhaps as many as 200. The Israelis say they are only interested in 25 to 30 hard-core Palestinian fighters. They say they come from Hamas and Tanzim, which is a branch of Yasser Arafat's fatah movement. Those are the people the Israelis say they want because the Israelis allege they have perpetrated acts of terror against Israeli citizens. Hence, this move against Bethlehem.

Now, you should also note the reason there are so many other Palestinians in there, particularly Palestinian policemen, is that the Palestinian police station here in Bethlehem is right on the corner, just adjacent to the Church of the Nativity. And when the Israeli tanks and helicopters rolled in, their small arms were no match for the Israelis.

So the Palestinian policemen, part of Yasser Arafat's police force, but still legitimate, civil policemen, ducked into that church as well. And there are a good many policemen in there, in that church at this time. The Israelis say they're really not interested in them. And yesterday, or the previous days' behavior here, rather confirmed that. Because 26 people were allowed out of the church. About half of them were Palestinian policemen.

I spoke with some of those people in the last 24 hours. And as soon as the Israelis questioned them, ran them through the computer, found out that they were who they said they were, these men were out walking the streets again. Again, what's important to know here is the Israelis are here because they believe there are, as I say, 25 to 30 Palestinians inside that church who are responsible for acts of terror. And that's why the Israelis are maintaining their siege here -- Jan.

HOPKINS: Thanks very much. Walter Rodgers in Bethlehem.

And we're now going to look at live pictures from Ramallah, another place where there is news happening. This is at Yasser Arafat's compound. Israeli troops have left the compound and these are supporters of Yasser Arafat, celebrating the withdrawal of the Israeli troops.

Yasser Arafat spoke just a few minutes ago about what was going on at the Church of the Nativity. Let's listen.

(BEGIN VIDEO CLIP) ARAFAT: What is going on at the Nativity church? Can you imagine what is happening? Firing on it with all kinds of fire, and rockets. And firing. The Latin church and the (UNINTELLIGIBLE) church, complete firing.

I am asking you to ask the whole international world, this is a holy place, not only for the Christians, for the Christians and for the Muslims.

How keep the silence about this dirty, this big criminal? (UNINTELLIGIBLE) take his place in the Nativity church.

(END VIDEO CLIP)

HOPKINS: Yasser Arafat speaking at his compound in Ramallah a short time ago. The Palestinian view is that the Israeli troops tried to storm the Church of the Nativity and a fire broke out as a result of that. The Israeli view is that there was no storming of the church and that the fire was started by Palestinians inside that church.

And that is what the situation is now. Let's go back to Ramallah and see what's happening there live.

This is, again, the compound of Yasser Arafat in Ramallah. These are live pictures, what's going on right now. Celebration after the withdrawal of Israeli troops from this compound.

Yasser Arafat is now free to leave this compound if he wishes. He was speaking just a little while ago.

CNN's continuing coverage of the situation in Bethlehem and Ramallah continues with Wolf Blitzer.

ANNOUNCER: This is CNN BREAKING NEWS.

WOLF BLITZER, CNN ANCHOR: "CROSSFIRE" will begin in just a moment. I'm Wolf Blitzer in Washington. We have the latest developments. Fighting has died down near the Church of the Nativity in Bethlehem. Earlier there was gunfire. An explosion and a fire inside the building that appeared to be adjacent to the Church of the Nativity. The flames have died down, although there are still sporadic small explosions. Among the dozens of Palestinians inside the church, about 20 are wanted by Israel as suspected terrorists. They've been holed up in the church for a month.

The situation in Bethlehem brought an angry condemnation tonight from a newly freed Yasser Arafat in Ramallah. The Palestinians accused Israel of attacking the church. Israel denies it. Earlier tonight, Israeli forces pulled out completely from Arafat's Ramallah compound area after six Palestinians were transferred to a jail in Jericho also on the West Bank.

Let's go live to CNN senior international correspondent Walter Rodgers. He's on the scene in Bethlehem. He'll tell us the latest -- Walter. RODGERS: Hello, Wolf. The fires which were burning in and around the area of the Church of the Nativity here in Bethlehem, the traditional site of Jesus' birth, have been extinguished. They were begun about midnight local time, about two hours ago. There are conflicting reports and accounts of what exactly happened.

But according to the Israelis, the Palestinians were under the -- the Palestinians inside the church were under the mistaken impression that the Israelis were commencing a siege, a military operation, to extricate the Palestinians from the church. At that point, according to the Israelis, the Palestinians set three different fires in the area of the Church of the Nativity because they thought it was the doomsday bit.

So according to the Israelis, the Palestinians set fire to the Church of the Nativity or the areas around it when they discovered it was not a siege and the Israelis say they never had any intention of moving against the church. Then the Palestinians apparently extinguished those fires themselves. From where I'm standing, and I was able to have a pretty good view of all of this, the biggest fire that I saw appeared just to the east of the Church of the Nativity, not in the knave itself, but in an area I think belongs to the Franciscans.

Having said that, again, those fires were extinguished. Again, there are conflicting reports as to how they were extinguished. The Israelis say the Palestinians who allegedly started the fires inside the church subsequently extinguished those fires. The Israelis said they offered to allow the Palestinian fire department here in Bethlehem to come up and put out the fires.

The Israelis say the Palestinians would not let the fire department near the church. There was a very serious firefight, again, around midnight local time. The Israelis say that the fire began coming from the Palestinian positions inside the church. The Palestinians say, no, it was the Israelis who fired on the church. We should point out that for many years that church was actually under the protection of the Israelis themselves, and the Israelis realize what a sacred shrine that is to Christians. It seems most unlikely the Israelis would have moved to damage that church and it is Arafat's gunmen who are inside -- Wolf.

BLITZER: Where it's just after 2 a.m. in Bethlehem with all the late-breaking developments. Walter, thanks for all your excellent reporting. We'll get back to you as developments warrant. We'll continue to monitor the situation in Bethlehem, as well as in Ramallah. More news at the bottom of the hour or earlier, depending on what happens. In the meantime, CROSSFIRE begins right now.

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